Aunt Midge Not Dying in Hospice Reveals $14B Market

By Peter Waldman -
Dec 6, 2011

Janet Stubbs was grateful when the
nursing home recommended hospice care for her aunt Midge.
Although Stubbs knew her aunt wasn’t dying, the offer of free,
Medicare-paid hospice visits from a nurse and chaplain, plus an
extra weekly bath, was too good to pass up.

Stubbs didn’t know that her aunt, Doris Midge Appling, was
admitted to Hospice Care of Kansas during the company’s “Summer
Sizzle” promotion drive, which paid employees as much as $100 a
head for referrals, according to the U.S. Department of Justice.
Stubbs also said she had no clue that the nursing home doctor
who referred her aunt for hospice moonlighted as medical
director for the hospice company.

“It doesn’t seem right,” said Stubbs, who had Appling’s
power of attorney to make medical decisions. “What incentive
did the doctor have to put my aunt on hospice? How much was she
being paid?”

Hospice care, once chiefly a charitable cause, has become a
growth industry, with $14 billion in revenues, 1,800 for-profit
providers and a base of Medicare-covered patients that doubled
to 1.1 million from 2000 to 2009.

Compensation based on enrollment numbers, pay to nursing-
home doctors who double as hospice medical directors, and gifts
to the nursing facilities have helped fuel the boom, according
to an examination of 1,000 pages of court documents and
interviews with more than 45 current and former hospice
employees, patients and family members.

KKR Buys In

“They wanted us to admit, admit, admit,” said Joyce
White, a former marketer for Vitas Healthcare, a Chemed Corp. (CHE)
unit that is the nation’s largest hospice chain. “All of us
competed against each other to make our numbers. You lived or
died by your numbers.”

Publicly traded companies like Chemed and Gentiva Health
Services Inc. (GTIV) have created hospice chains through serial
takeovers in the last decade. Hospice buyouts and investments by
private-equity firms have also led to boosted enrollments.

“There was always pressure to get the patient census up,
any way we could, to sell the company,” said Rae Ann Angelo, a
Wichita salesperson for the Kansas hospice between 2003 and
2009, including most of the time when Apax owned it. “You can’t
sell unless you show big growth.”

‘Make a Buck’

Other private equity concerns that have been active in the
hospice trade include Denver-based KRG Capital Partners LLC. KRG
sold Dallas-based Trinity Hospice for $75 million in 2006. The
company was liquidated by the buyer, nursing-home operator
Sunrise Senior Living Inc., (SRZ) two years later, after $67 million
in writeoffs and government allegations of ineligible patient
enrollments prior to the takeover.

“After KRG came in, it was clear their philosophy was,
‘Put everyone on hospice, don’t ask questions and build!” said
Catherine Covington, who worked as a Trinity compliance officer
from 2000 to 2004. “They were there to make a buck.”

KRG members on Trinity’s board ordered “immediate
disciplinary action” when they learned of compliance
violations, which led to terminations, according to KRG
spokesman Topper Ray.

Diapers, Wheelchairs

Hospice Care of Kansas, or HCK, gave salespeople a budget
of $500 a month to buy lunches and gifts for doctors and
nursing-facility managers and staff, said Angelo, who now works
for another hospice. Nursing homes have been offered diapers,
wheelchairs, nutritional supplements and other supplies in
return for patient referrals, other former hospice workers said.

Vitas paid salespeople bonuses based on patients’ length of
stay, according to White, who worked for the company in
Cathedral City, California, from 1998 to 2004. Medicare, which
foots 90 percent of the national hospice bill, compensates
providers on a per-diem basis, and lengthier stays increase
profitability, federal data show.

Vitas “compensates some marketing and management
representatives based on overall growth,” according to
spokeswoman Kal Mistry. She said Vitas does not link
compensation to length of stay or pay bonuses to employees
involved in admissions decisions.

Pizza Parties

VistaCare Hospice, a unit of Atlanta-based Gentiva, paid
enrollment bonuses to doctors, admissions directors and branch
managers, according to Misty Wall, a former social worker for
the company and now an assistant professor at Boise State
University in Idaho. VistaCare also gave pizza parties, gift
cards and other extras to its registered nurses and social
workers for meeting admission targets, Wall said.

Wall has filed a lawsuit against VistaCare in U.S. District
Court in Dallas under the U.S. False Claims Act, seeking
repayment to the government for admissions of ineligible hospice
patients. The law lets plaintiffs share in any recoveries. The
Justice Department, which has not joined Wall’s suit, is
opposing VistaCare’s motion to dismiss the claim.

The allegations predated Gentiva’s ownership of VistaCare,
according to spokesman Scott Cianciulli, who said the company is
committed to complying with all Medicare rules.

The inspector general of the U.S. Health and Human Services
Department is probing hospice marketing practices and financial
relationships with nursing facilities. The inquiry was spawned
by a 2009 report by the Medpac commission, a congressional
advisory body, that found hospices “aggressively marketed” to
nursing-home patients, and paid incentives to medical directors
for “inappropriate” referrals and enrollments.

Complicated Laws

Under various federal statutes, paying for patient
referrals or compensating employees based on the number of
Medicare patients recruited may be illegal. But the laws are
“painfully complicated” and loaded with exceptions, said Ryan
Stumphauzer, a former federal prosecutor in Miami who helped
launch South Florida’s Medicare Fraud Strike Force.

Stumphauzer said he and other “cautious” lawyers believe
the health care laws bar all employees and contractors from
earning bonuses based on Medicare enrollment goals, including
salesmen and managers.

Nursing-home physicians referring patients to hospices that
also pay the doctors, especially in cases when the compensation
includes enrollment bonuses, may violate a federal statute known
as the Stark Law, according to Stumphauzer. The law is designed
to ensure that doctors refer patients based on who provides the
best care, not based on who is paying them.

Patient 11

Seven pending or settled lawsuits against hospice companies
say that enrollment-based incentives led to admitting patients
who didn’t qualify for hospice care. Appling, Stubbs’s aunt, is
identified as “Patient 11” in one of these cases, a U.S.
Justice Department civil fraud complaint against HCK and its
owner, the Voyager HospiceCare unit of Harden. Prosecutors say
the company bilked Medicare by paying bonuses to employees and
doctors to sign up patients who weren’t dying.

HCK in court filings denied it billed Medicare for
ineligible patients. Those the government identified were
eligible because “a medical director and/or an attending
physician certified” they were terminally ill, HCK said.

Appling was discharged after 20 months in HCK, and lived
four more years before her death in April at age 106. Medicare
paid nearly $80,000 for her hospice care.

Imminent Death

Harden’s purchase of HCK’s parent was part of a flurry of
buyouts in the sector. A record 17 hospices were acquired in the
first six months of 2011, according to Dexter Braff of the Braff
Group, a Pittsburgh-based merger-advisory firm. Prices for mid-
sized and larger hospice chains have risen “significantly” in
the past two years, from about one times annual revenue to as
much as 1.5-times, said investment banker Burk Lindsey of
Raymond James & Associates in Nashville.

The rise of for-profit hospice care since 2000 has helped
drive a 60 percent increase in the average time patients spend
in hospice, to 86 days in 2009, according to Medpac. The average
stay of the 10 percent of patients who remained in hospice the
longest soared 71 percent to 240 days.

That means at least 110,000 patients weren’t facing
imminent death when they were admitted -- although doctors said
they were. To qualify for Medicare hospice coverage, patients
must have a prognosis of six months or less to live, certified
by two doctors.

‘Christmas Cash Blitz’

Profit margins on healthier patients who survive for years
with minimal care can exceed 20 percent, according to Medpac.
Medicare patients can stay on hospice indefinitely, as long as a
hospice physician recertifies that they are terminally ill every
60 days.

Besides the “Summer Sizzle” promotion, the push for
patients at HCK included “Christmas Cash Blitz” and “Fall
Frenzy” admission drives. Those eligible for cash incentives in
these and other programs included managers and admissions and
medical staff, according to a dozen former employees.

A former company nurse said employees were warned that
disclosing the incentive arrangements outside the company was a
fireable offense, according to summary of her interview with the
Federal Bureau of Investigation.

The nurse, Yolanda Anderson, was dismissed for revealing
the bonus program to a social worker at a nursing home,
according to a Justice Department court filing. Harden couldn’t
comment on the reason Anderson left because her departure pre-
dated its acquisition, said spokeswoman Meg Meo.

Free Vacations

Hospice salespeople would vie with drug marketers to
provide lunches for doctors, since free food was often the only
way to buttonhole them, Angelo said. She’d let physicians’
offices order off the menu from Scotch & Sirloin, a Wichita
steak house, and then pick up and deliver the order.

Doctors and nursing homes that Angelo looked to for
referrals were given baskets of bread, candy and other goodies
at holidays, plus pens, mouse pads, calendars and hand sanitizer
emblazoned with the hospice logo, she said. Medical directors --
many of whom also worked for nursing homes -- took a company-
paid annual “retreat” to locales including San Diego, and free
family vacations at Great Wolf Lodge in Kansas City, Kansas,
according to Angelo.

Angelo said her base salary was about $45,000 a year, plus
$8,000 to $10,000 in bonuses that were hers to keep whether or
not admitted patients turned out to be ineligible.

Rising Patient Stays

HCK was founded in 1998 by Wichita social worker Mark Rowe.
Rowe sold the company in 2004 for $11.9 million to Voyager
HospiceCare, a startup launched that year by a firm later
acquired by Apax. Rowe stayed on as chief executive officer
until 2006, garnering at least $2.1 million in additional pay
from Voyager, according to HCK court filings.

Under Voyager’s control, HCK increased the average patient
stay at its main Wichita branch 45 percent to 109 days,
according to Healthcare Market Resources, a medical researcher
in Thresher, Pennsylvania. During the same 2004 to 2009 period,
the average length of stay at all Kansas hospices rose 30
percent to 86 days, the firm said.

Apax sold Voyager in 2010 to Harden for roughly $80
million, or about four times Apax’s investment, said Thomas
Combs, Voyager’s co-founder. The purchase was funded with $90
million in loans and equity from Kohlberg Kravis, which now owns
a minority stake in Harden, according to KKR spokeswoman Kristi
Huller. She declined to comment on the government’s allegations
and referred further questions to Harden.

‘Patients Aren’t Widgets’

Apax wasn’t named in the U.S. suit against Voyager and HCK,
which is pending. Lew Little, Harden’s CEO, declined to answer
questions about the federal allegations against Voyager and HCK.

“It is not an unusual practice” for doctors to be medical
directors at nursing homes and hospices simultaneously, and some
patients “take comfort” from continuing into hospice with the
same doctor, Little said in an email. No HCK medical directors,
including Ewy, received compensation based on referrals or
enrollment size, Little said.

“The hospice industry is not about financial incentives
but about providing quality of life and dignity to patients,”
he said.

HCK taught salespeople to visit nursing facilities to
identify hospice prospects, get to know their families and
strike up “friendly games of dominoes,” said another former
marketer, Vickie Hardiman. When Rowe pushed her to accept
commissions for patient admits, Hardiman said she refused
because “dying patients aren’t widgets.”

Admissions ‘Pressure’

Rowe, who now owns an HCK rival, Rivercross Hospice in
Kansas and Oklahoma, said his hospices have always complied with
federal rules and regulations and receive high marks from
government overseers.

Admissions directors at the Kansas hospice were eligible to
earn bonuses of up to 15 percent of their salary for meeting
enrollment targets, and medical directors were eligible for “ad
hoc ‘spiff’ bonuses” based, in part, on enrollment, according
to the government complaint, filed last year in U.S. District
Court in Kansas City, Kansas.

Nurses evaluating patients for hospice admissions reported
to the marketing department, and felt “pressure” to admit
patients whom the marketers identified, whether eligible for
hospice or not, according to Pat Perkins, a former HCK nursing
supervisor.

Hospice ‘Doorkeepers’

HCK paid nursing-home doctors up to $4,000 a month to
consult for a day or so per week on patients’ conditions and to
sign treatment orders, said Roger Megli, a former HCK chaplain
and marketer. The nursing-home physicians served as the
hospice’s “doorkeepers,” according to Megli.

“If I’m getting $3,000 or $4,000 a month from a hospice to
work one day a week, I’m going to refer my patients to hospice,
too,” said Megli.

The company used its network of nursing-home doctors to
provide a ready supply of patients, according to family
physician Larry Anderson of Wellington, Kansas, a former
president of the Kansas Medical Society. Several times when he
declined to approve his patients for hospice because they
weren’t dying, one of the nursing-home doctors certified them
instead, Anderson said. He called it ”a win-win for everybody
but the taxpayer.”

More than half of Voyager’s patients resided in nursing
homes, according to Combs, the company’s co-founder and former
senior vice president. That compares to about one-third of
Medicare hospice patients nationally.

Hershey’s Kisses

The government often pays twice for hospice patients in
nursing homes -- about $137 a day to the hospice provider from
Medicare, and about $200 a day that goes to the nursing facility
from Medicaid, which covers the indigent elderly.

“Hospice should not be in nursing homes at all,” said
Anderson. “It’s redundant and it’s an expense we cannot afford
and don’t need.” In July, the inspector general of HHS
recommended reducing payments to hospices in nursing home.

Stubbs, Appling’s niece, said she got a call one day from
the nursing home where her aunt lived offering extra care if she
were enrolled in hospice. HCK admitted Appling with a terminal
diagnosis of cardiovascular accident, or stroke. It was changed
later to “general debility,” according to documents filed in
the court case.

Ewy signed two separate hospice admission orders -- one as
Appling’s attending physician at the nursing home and another
one as the Kansas hospice’s medical director, copies of the
documents show.

Not that Appling was dying, Stubbs said. She and her
husband continued visiting her aunt twice a month at the home,
Wheat State Manor in Whitewater, Kansas. Stubbs’s son and his
children often joined them. Aunt Midge in her wheelchair would
eat Hershey’s Kisses and play ball with the children in the
garden, or Uno indoors when it was cold.

‘Inappropriate For Hospice’

A year after Appling went on hospice, the medical staff
noted in her chart that she’d gained weight, was “doing well”
and was “inappropriate for hospice,” according to documents
submitted as evidence in the federal fraud case. Yet Appling
remained on hospice eight more months before the company
discharged her, according to Stubbs.

Medicare paid HCK $3,980 a month to care for Appling,
according to the government’s complaint. On top of that, Stubbs
paid the nursing home $4,000 to $5,000 a month for room and
board. “I feel really dumb,” Stubbs said.

Stubbs said she worries her aunt’s hospice stay may have
deprived Appling of medical treatments that might have helped
her. Patients who enroll in hospice agree to accept pain
management instead of aggressive, or “curative,” treatment.

Resisting Discharges

Stubbs said no one explained that when she enrolled
Appling. Stubbs wonders if her aunt, who had several strokes,
might have benefited from drugs or rehabilitation unavailable to
most hospice patients.

“Could we have made her remaining years more
comfortable?” Stubbs asks.

In 2005, the year Appling went on hospice, about 25 percent
of HCK’s patients did not meet eligibility requirements and an
additional 25 percent were questionable and needed to be
reviewed, according to Diana Alvarez, the company’s former
director of program integrity.

When members of the medical staff wanted to discharge a
patient for good health, hospice managers -- whose pay was tied
to enrollment -- resisted, according to Brian Billings, a
physician in McPherson, Kansas, who worked for HCK from 2003
until 2007. Billings said he quit because the hospice wouldn’t
discharge patients who “obviously” didn’t qualify. “There was
a definite shift toward the bottom line,” he said.

Gerald Stout spent about a year in HCK hospice care ending
in 2006, and is still alive more than five years later, said his
daughter, Brenda Chastain. No one “ever said anything about
dying” when he was admitted, Chastain said.

Eight months after Stout was admitted by HCK for
Parkinson’s disease, medical reviewers noted in his chart that
he’d gained weight, got around well with a walker and “was not
appropriate” for hospice. He was discharged three months later.
Medicare paid more than $34,000 for his hospice care.